This may be a perfectly good explanation, but if this is the case, why doesn't the Robinhood people release a statement explaining this instead of the puff piece the CEO did for PR.
The "lied" bit is debatable because there's multiple ways of interpreting his statement. It could be "there's no liquidity issue [and we could have let GME stock trade freely without running into liquidity issues]" but also "there's no liquidity issue [anymore, because we stopped GME from being traded]". The former clearly favors WSB's narrative, so that's what everyone there believed, even though it's reading too much into the CEO's statement.
WSB users are known to exploit Robinhood problems for fun. There was one case a few years back where they found a way to evade margin requirements and get arbitrarily high leverage, for example. If I were Vlad Tenev, I'd be seriously concerned that a detailed description of which kinds of trades cause problems for Robinhood would be used to collect WSB accolades by knocking the company over.
Because that's not actually the problem. If it was just ACH deposit clearing time, I'm sure they could have found bridge money rather quickly for that as their ACH failure rate has to be tiny.
The problem was clearing house margins. It went from a few percentage points every buy of GME to 100%. You cannot use customer money for these deposits, it must come from the brokerage firm's funds itself.
I think it really needs to be discussed that there were multiple "liquidity" crunches for RH here, one far more significant than the other.
You could have had every single buyer of GME locked and loaded with $100k of cash in their account for a month, but if they all bought GME last week for cash RH would still have the same exact margin requirement problem they have now with their clearing house. That they still had hundreds of billions of their customer's capital on deposit would have been irrelevant.
Why can't you use my money as collateral on the securities I told you to buy for me? Is this a "funds transfers used to be very slow" thing between the broker and the clearinghouse?
This was the biggest issue of the article, if I buy a share with cash I already deposited with broker, the broker will use 100% of that cash to buy the share, whether as margin first or straight paying for the share. Can any explain to me why RH would need to put collateral/margin up for shares bought with successful customer deposits?
The other explanation is that they are running a b-book that is underwater due to the runaway success of GME and have big losses from that.
But that's something of a slog to read. The closest I've found is footnote 13 in this rule change, which notes that it was requested to change this requirement. I haven't found anything contradictory.
So the brokerage is always required to sit on the buyer’s money just in case they can’t readily get the securities or the collateral from the clearinghouse, and the buyer can’t even put up extra money to make sure the transaction can go through. Weird, but good find.
So much of Robinhood's product is built on the facade of a margin-account-not-being-a-margin-account that that would be impractical.
Doing so would have likely pissed people of more.
"New sign up to Robinhood? Just started a transfer? Awesome! I know all our marketting material says 'trade right away', but actually you have to wait 2 days right now."
"Just sell a bunch of other stock in order to buy GME? Well, unfortunately right now you can't use that money for 2 days. See you next week! Ps: thanks for the taxable event that you probably wouldn't have done if you understood that you'd have to wait!"
